Offer In Compromise

What Is An Offer In Compromise (OIC)?

An offer in compromise (offer) is an agreement between you (the taxpayer) and the IRS that settles a tax debt for less than the full amount owed. This applies to all taxes, including any interest, penalties, or additional amounts arising under the Internal Revenue Code. It is one of many tax resolution options the may be applicable to you.

An offer in compromise allows you to settle your tax debt for less than the full amount you owe if the IRS offer is accepted. It provides eligible taxpayers with a path toward paying off their tax debt and getting a “fresh start.” The ultimate goal is a compromise that suits the best interest of both the taxpayer and the IRS. Generally you must propose an appropriate offer amount based on what the IRS considers your true ability to pay. It may be a legitimate option if you can’t pay your full tax liability. Or, doing so creates a financial hardship.

The “Pennies On The Dollar” Myth

Thanks to advertisements, a common myth or perception is the impression that taxpayers can easily settle their tax liability “for pennies on the dollar”. While you can certainly obtain a lower settlement of your tax debt. They provide an incorrect perception that they are “accepted” offers.

The IRS considers your unique set of facts and circumstances. Taxpayers who owe back taxes can take advantage of the Offer-in-Compromise program, but YOU MUST QUALIFY. So it is important that you have representation from an experienced tax professional, such as Tax Samaritan. So that your interests are protected and that an appropriate offer is made based on your:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.

The OIC application requires you to describe your financial situation in detail. So, before you proceed you must be willing to make a full and complete disclosure in the above areas and to pay the required application fee and down payment (as applicable). It all comes down to a formula. The IRS utilizes a formula known as “Reasonable Collection Potential” or “RCP” for short, to determine qualification and if the taxpayer qualifies, what the correct amount is to offer the IRS.

This is why over 90% of our offers are accepted and why so few other firms find success and at the end of the day have over-promised what actually can reasonably be delivered.

Eligibility For An Offer In Compromise

Before the IRS considers your offer, you must: (1) file all tax returns, (2) make all estimated tax payments for the current year, and (3) make all federal tax deposits for the current quarter if you are a business owner with employees. In addition, you are not eligible if you are in an open bankruptcy proceeding.

The OIC program is an option for taxpayers who are unable to pay their tax amounts in a lump sum or through an installment agreement. You must exhaust your search for other payment options. To qualify for the OIC program, taxpayers demonstrate and prove that a lump sum or installment agreement is not possible.

The Offer in Compromise program is not for everyone.

The IRS may legally compromise a tax liability for one of the following reasons:

  • Doubt As To Liability: There is doubt as to whether or not the assessed tax is correct.
  • Doubt As To Collectability: There is doubt that you could ever pay the full amount of the tax owed. In these cases, the total amount you owe must be greater than the sum of your assets and future income.
  • Promote Effective Tax Administration: There is no doubt that the tax is correct and no doubt about he collectability of the amount owed, but you have an economic hardship or other special circumstances which may allow the IRS to accept less than the balance due.
  • Lump Sum Cash: Paid within 5 or fewer installments within 5 or fewer months from notice of acceptance.
  • Short Term Periodic Payment Plan: Paid within 24 months (2 years) from the date the IRS receives the OIC.

Generally, the IRS will not accept an offer if you can pay your tax debt in full through an installment agreement or a lump sum.

It is important to note that penalties and interest will continue to accrue during the offer evaluation process.

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